Updated · Mar 28, 2023
There’s only one regular event in the cryptocurrency industry considered more sought-after than the Bitcoin Conference. Clue: it’s about as elusive as February 29.
It’s the halving.
But what is it?
How does it impact the crypto economy?
And should you care if you’re neither a Bitcoin miner nor an investor?
Keep reading to see why you need to keep at least half an eye on this momentous occurence.
What Is Bitcoin Halving?
The halving is an event where Bitcoin’s block subsidy – the amount of mintable BTC – decreases by 50%.
It happens about every four years. And it’s the Bitcoin protocol’s way of controlling the supply of new coins entering circulation.
Anyone who understands crypto knows that scarcity is core to the appeal of Bitcoin. It has a hard cap of 21 million tokens.
In theory, the Bitcoin supply limit isn’t as immutable as blockchain records. But this crypto’s governance model and incentive system have made it economically nonsensical for any powerful stakeholder to play God.
So, what is Bitcoin halving really for?
The halving, along with the hard cap, helps BTC stay valuable over time.
This phenomenon regulates Bitcoin issuance. It prevents miners from minting more BTC than they should as a reward for validating transactions. As a result, the halving makes the growth of Bitcoin’s minted supply predictable.
These two concepts separate Bitcoin from gold.
The former’s maximum supply and minting schedule are known to the public. The latter is also finite, but there’s no telling how much of it actually exists.
Considering the role of BTC halving in the crypto’s tokenomics, it could have far-reaching effects on the industry as a whole.
Historically, this quadrennial event has been a catalyst for extreme price speculation.
Due to the scheduled subsidy reduction, investors anticipate a surge in demand. This compels crypto heads to hodl (“hold on for dear life”), propelling Bitcoin’s price to new heights and usually grabbing the interest of new buyers.
How Does it Work?
Written in the crypto’s source code, a Bitcoin halving event happens every 210,000 blocks.
If that’s the case, how do we know that the Bitcoin halving timeline is approximately four years?
Bitcoin doesn’t have a clock; rather, it is a clock. Its own timekeeping mechanism is the blockchain, which expresses time through blocks.
The Bitcoin protocol allows the creation of a new block every 10 minutes or so. To hit this target consistently, it would alter the mining difficulty and respond to changes in hashing power accordingly.
High hashing power helps speed up the process of winning a block. The greater the number of miners participating in the network, the higher the collective hashing power.
Every 2,016 blocks, Bitcoin would recalibrate its blockchain. It would look back and check how fast successful miners were able to claim new blocks.
If the blockchain grew faster than intended, Bitcoin would make it mathematically harder to mine. But if network participants spent more time on it, it would do the opposite.
Since Bitcoin’s rollout in 2009, this recalibration system has worked like a charm. Over a decade’s worth of data shows that the average time to find a block has been 9.5 minutes.
In turn, every BTC halving cycle, like clockwork, spanned roughly four years since the first one in 2012.
The next and fourth Bitcoin halving will transpire at block 840,000. It will slash the current Bitcoin block reward and set it at 3.125 BTC. The crypto industry forecasts it to come about on March 15, 2024.
Bitcoin’s Halving History
Mined by Bitcoin creator Satoshi Nakamoto, the Genesis Block, also known as block 0, contained 50 BTC as subsidy. In other words, every successful miner was able to pocket 50 pieces of Bitcoin until block 210,000.
- First having: On November 28, 2012, the subsidy dropped from 50 BTC to 25 BTC. It took place after 10,500,000 coins entered circulation, which is half of the total Bitcoin supply limit. A year after this event, the BTC price exploded by 10,041%, from $12 to $1,217.
- Second halving: On July 9, 2016, the reward from every new Bitcoin block went from 25 BTC to 12.5 BTC.
At this point, the Bitcoin price was at $647. This Bitcoin halving event saw its price almost touch $20,000 on December 17, 2017.
Exactly 12 months later, its value plummeted to $3,276, an 83% crash. Despite the epic end to this amazing bull run, the bears never revisited the pre-halving price.
- Third halving: On May 11, 2020, Bitcoin halved the subsidy and began incentivizing miners 6.25 BTC per block. As expected, this one set the stage for another bull run.
From $8,787, Bitcoin recorded an all-time high of $68,680 one and a half years later. Unlike the previous two, BTC’s price action following this BTC halving didn’t include euphoric parabolic moves.
Benjamin Cowen, a crypto luminary, has argued that BTC is subject to the law of diminishing returns.
Also, he has theorized about the possibility that the Bitcoin cycle might have lengthened. His hypothesis could explain why the crypto’s price movement has been uncharacteristically tame after the third halving.
What Happens After the Last Bitcoin Halving?
It would take 64 halvings to release all 21 million BTC into the market. And crypto industry observers project it to take place around the year 2140.
As of May 2022, there are more than 19 million minted Bitcoin. So for the next 118 years, the amount of BTC miners could still “unearth” is less than 2 million. Nothing more, nothing less.
By the time the last Bitcoin halving rolls around, the subsidy will be minuscule.
When BTC crosses the proverbial point of no return, it will stop subsidizing mining. And miners will have to rely solely on network fees to keep the lights on.
Despite losing one source of revenue, Bitcoin network participants should still be able to turn a profit. Living off network fees can be lucrative due to greater transaction volumes and higher BTC market prices.
Having said that, it’s impossible to foretell the exact economics of Bitcoin mining more than a century from now.
Believe it or not, this trailblazing cryptocurrency is still a work in progress. It continues to undergo key upgrades to soup up its overall functionality.
In 2140, the world will probably be unrecognizable to us. So, who’s to say that Bitcoin will have the same reward system in the distant future?
Its developers might entice miners to stay and keep validating Bitcoins through novel rewards. Or, BTC stakeholders might decide to adopt a different consensus mechanism. The possibilities are endless.
Unless a big paradigm shift happens, Bitcoin may still be the same crypto by the time we have colonies on Mars. And, as Nakamoto originally intended, its network participants could continue getting rewarded when there’s no subsidy left.
Self-regulating coin issuance is among the many reasons why Bitcoin is such a revolutionary monetary system.
Crypto investors look forward to the halving since it helps identify the onset of the buying season. However, the real essence of this event is rendering minted BTC supply predictable and network participation rewarding.
This programmatic occurrence won’t last forever. But it won’t stop before bitcoin fully matures as an asset.
Is halving good for Bitcoin?
Yes, it is!
In fact, the halving isn’t only good for Bitcoin; it’s one of the things that makes the king of crypto special.
If the Bitcoin protocol didn’t cut the subsidy in half approximately every four years, then the following would’ve happened:
- All of the BTC supply would’ve been minted too quickly and in the custody of a few hodlers.
- Casual investors wouldn’t have become interested in Bitcoin in the first place due to uninspiring price action.
- The adoption rate of crypto would’ve suffered.
- There would’ve been lower BTC transaction volumes since there wouldn’t have been enough people and entities using the asset.
- Miners would’ve had less incentive to participate in the network.
- Bitcoin wouldn’t have been as decentralized and secure as it should be.
Thanks to the halving, there’s plenty of minted BTC to change hands on Bitcoin exchanges. And there’s still enough unminted supply to attract new miners to join the Bitcoin network.
Since the occurrence of the Bitcoin protocol’s next halving is known, the crypto industry is easier to navigate.
Most importantly, the subsidy’s regularly scheduled halving is one of the two main things that distinguishes Bitcoin from gold.
It helps set the expectations regarding BTC’s stock and flow properly. Gold bugs can’t say the same thing about the precious metal. In the 21st century, people are still discovering more reserves of this supposedly scarce asset.
Bitcoin is different. Its supply is 21 million max. And the schedule of its coinage is as predictable as sunrises and sunsets.
What will Bitcoin do after halving?
Theoretically, a halving would cause a chain reaction:
- The block subsidy goes down by 50%.
- Bitcoin inflation decreases by the same rate.
- The flow of new BTC into the available supply slows down.
- The demand for Bitcoin increases.
- The BTC price goes up.
- The miner’s incentive to be in the Bitcoin network remains appealing.
If this ideal series of events doesn’t pan out, Bitcoin will ease the mining difficulty. Reducing the time needed to discover a new block can help discourage miners from quitting.
This should keep network participants happy while Bitcoin builds momentum. When the bulls beat the bears and decisively regain control over the market, there will be run-ups in BTC prices.
Will Bitcoin price drop after halving?
Nobody knows for sure where Bitcoin’s price will go at any given time. But if history is any guide, it’s unlikely to drop after a halving.
In the past, halvings renewed the public’s interest in Bitcoin and the rest of the cryptocurrency industry. They put crypto in the spotlight, resulting in significant media mileage and helping raise the world’s awareness of it.
By now, experienced crypto hodlers know what will likely happen when BTC’s block subsidy shrinks by 50%. After each of the first three Bitcoin halvings, the king of crypto went to the moon.
However, consistently accurate predictions on the price action of Bitcoin, or of any crypto for that matter, are impossible.
If you get in when most buyers are greedy, chances are you’ll get wrecked. When most investors are fearful, you may follow the herd and miss out on a great opportunity to accumulate crypto.
More often than not, having a contrarian attitude towards investing pays dividends. The problem is the crypto industry can be confusing to navigate. With the entry of institutional investors, you’d now have to worry about whales in addition to scammers.
Investors with fat crypto wallets can have tremendous influence in the industry. They may be powerful enough to push the Bitcoin price in the direction they want to satisfy their whims.
So, we’re all at their mercy. Even long-time hodlers with diamond hands can sometimes feel the pressure and fall for market manipulation schemes.
So, what is Bitcoin halving exactly? And how can it make you a more prudent cryptocurrency investor? Read our full piece on the topic to wrap your head around this pivotal event in the crypto industry.
Romj is a veteran copywriter who used to be a Jack of all trades. Now, he's trying to be a master of one: technology. He jumps down the rabbit hole to size the latest innovations up. As a content contributor for TechJury, he hopes to help you keep up in our fast-paced world with his discoveries.
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